ABC, wholesale, customer profitability. Villeagas Wholesalers sells furniture items to four department-store chains. Mr. Villeagas commented, “We apply ABC to determine profit line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well.” Villeagas Wholesalers sends catalogues to the corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a six-month period from the purchase date and receive a full purchase price refund. The following data were collected from last year’s operations:

1 Gross sales $60,000 Sales returns:

Number ofitems 100 Amount $12,000 Number of orders:

Regular 40 Rush 10 Chain 2 3 4

$36,000 $120,000 $84,000 26 60 40

$ 6,000 $ 8,400 $ 7,200 150 50 70 50 10 30 Villeagas has calculated the following activity rates:

Activity Regular order processing Rush order processing Returned items processing Catalogues and customer support Cost Driver Rate

$24 per regular order

$120 per rush order

$12 per item

$1,200 per chain Customers pay the freight costs. The cost of goods sold averages 80% ofsales.

Required Determine the contribution to profit from each chain last year. Comment on your solution.